Why distressed hospitals need better internal audit controls

A growing number of U.S. hospitals are breaching contractual obligations with their banks, highlighting the need for greater internal audit controls that can flag such issues and stop a problem from becoming a crisis.

These hospitals, often smaller, rural facilities, are financed with bond debt or bank loans that require they remain in line with certain financial goals or covenants. For example, a hospital may have to hold sufficient cash to cover 150 days of expenses, or maintain a certain debt coverage ratio — sufficient free cash flow to potentially service debts. When a hospital falls below specific thresholds, such as having 110 days of cash on hand, they are obliged to hire consultants to help fix the problem. Lately, a growing number of hospitals are being forced by creditors to get such help, discovering that internal audit controls are needed.